RedSwan: A Perfect Marriage of Fintech and Real Estate?
In the past, if you wanted to invest in CRE, you had two ways to do it. One, you’d buy a property flat out by yourself. The downside is that buying high-performing CRE assets can cost millions of dollars. Even if you financed the building, you’d be looking at decades worth of debt service and having to assume all the headaches of management or to pay for outside management.
The other way to go, and this method has proven to be popular, is to pool your money by joining a group of investors in buying property. Currently, one of the most common ways to do this is to buy into a fund such as a real estate investment trust (REIT). When you buy into REITs, you go onto the books as an equity owner and your equity share would be based on the percentage of the property you owned.
Buying into REITs is less expensive than being a sole proprietor, but it carries other potential complications. First, REIT shareholders have no say over what assets the fund buys and sells. Second, most REITs have hold periods during which shareholders can’t liquidate their investment. These hold periods can last several years. In the rare cases where a REIT has a secondary market, liquidating shares can still be punitive because of early liquidation fees.
The RedSwan real estate investing platform seeks to shift that paradigm by giving investors the benefits of real estate investing while offering them the enhanced liquidity of being able to sell shares on the blockchain.
How Does RedSwan Work?
When CRE developers seek funds, they turn to a variety of sources. RedSwan is a team of real estate professionals and investment analysts who provide that capital. In addition to having executed over $3 billion worth of CRE transactions, RedSwan’s team brings nearly 70 years of combined experience in CRE to the table.
Developers who submit properties to RedSwan for funding must undergo an intense vetting process that examines both the developer’s track record and the underlying fundamentals of their proposed deal. In cases where RedSwan’s team feels like the developer lacks the requisite experience or the proposed development doesn’t have the right balance of upside and risk, the platform will not accept it.
If the offering satisfies RedSwan’s vetting requirements, RedSwan will list it as an offering on its platform. When investors buy shares of the offering, they become equity owners in the property, and the platform converts the shareholder’s equity into tokens on a blockchain.
Potential Benefits of RedSwan
RedSwan’s founders believe its business model offers several distinct advantages over traditional real estate investing. First, it allows RedSwan to make high Class A and B real estate investment offerings available to small- and medium-sized investors at affordable prices. Secondly, it allows RedSwan investors to have tremendous flexibility. Normally, when you buy into a real estate fund or a property, you have a hold period where your money is locked up. This hold period can last for several years.
That can be a problem if your financial situation changes, and you want to liquidate your shares to make other financial moves. Some REITs don’t have out clauses or secondary markets where you can liquidate shares. Complicating matters further, the early liquidation of shares in most funds or property offerings (assuming they allow it) can carry significant penalty fees and tax implications.
RedSwan, in contrast, offers investors the flexibility of a blockchain ecosystem. One year after buying into a RedSwan offering, investors are free to do whatever they like with their tokenized equity through the blockchain. They can sell their property token or leverage it in decentralized financial markets. That means RedSwan investors can borrow money against the value of their property token or lend a portion of their equity out to a third party for interest.
RedSwan investors can have that flexibility while still enjoying the tax benefits of property ownership (depreciation, capital expenditures write offs). So, in a nutshell, RedSwan offers investors the chance to reap the benefits of equity shares in hiqh-quality real estate assets while still enjoying the kind of liquidity that is usually only associated with the stock market.
Investment fees are never anyone’s favorite subject, but if you want to invest in the kind of Class A and B offerings RedSwan offers, you will have to pay them. The extensive vetting that RedSwan does of its offerings — site visits, due diligence — costs money. In addition to that, a high level of tech support and full-stack web design goes into operating the RedSwan platform.
Without investor fees, it would be difficult for the platform to bring you quality offerings or even run the platform at all. With all that in consideration, RedSwan’s annual fee of 1.5% is reasonable and easy to understand. Considering the fact that RedSwan is offering investors a chance to buy into Class A and B offerings that would typically be well outside the reach of an investor with $1,000 to spend, the investor fee is pretty reasonable.
Thankfully, the people who design modern investment platforms almost universally focus on ease of use. They’ve clearly gotten the message that investors have little patience with a platform they feel like requires a Ph.D to effectively navigate. As you might expect of a platform that combines fintech and real estate investing, RedSwan is incredibly easy to use.
Sign up is a simple process that requires a two-stage e-mail and mobile number verification.
Once that’s done, investors can peruse the RedSwan exchange for the platform’s current offerings. If you find an offering that strikes your fancy, simply click on it and you’ll be taken to a screen that gives you all the offerings’ basic information — internal rate of return (IRR), minimum investment, management fee. Buying into an offering isn’t much more complicated than clicking a link and uploading a payment.
All in all, RedSwan is an easy-to-use platform that anyone who is comfortable with online applications will be able to use effectively.
Whenever you have a platform like RedSwan that offers such a unique method of real estate investing, the importance of investor education is magnified. It’s clear the founders of RedSwan know this and take investor education seriously.
A brief trip to RedSwan’s Frequently Asked Questions page will give you an effective primary education on its business model and how the real estate tokenization process works. There is also a wonderful YouTube channel that walks you through how to use the platform. It also offers great insight from the platform’s braintrust.
One of the best aspects here is that when you click on individual offerings, you also see a link to the email address of RedSwan’s CEO, Edward Nwokedi and links to members of RedSwan’s management team. You’re not going to get a formulated answer off a script but will connect with someone who is well equipped to answer your question.
Its News section keeps investors up to date on the world of real estate and fintech with articles about RedSwan offerings and fund-raising efforts as well as educational pieces that cover topics like building a new digital real estate empire and ways that blockchain real estate investments are good for investors. A podcast from Nwokedi specifically deals with tokenization in real estate.
Reviewing RedSwan’s YouTube channel, its FAQ page and the news articles give investors a thorough understanding of how the platform works and the potential benefits of real estate tokenization. From top to bottom, RedSwan’s investor education provides all the information you’d need to feel comfortable working with this platform. That’s as true for first-time investors as it is for cryptocurrency and blockchain veterans.
For any investment platform, the quality of the offerings is really the meat and potatoes of the whole affair. This fact is especially true for a platform like RedSwan that wants to hang its hat on the concept of making Class A and B investments available to people and still giving them the flexibility of tokenization. Because realistically, the token is only as good as the offering it’s attached to.
RedSwan passes this test with flying colors. Clicking on its exchange will reveal a diverse range of offerings in real estate markets all over the country. If you’re the kind of investor who wants to pick and choose your own offerings and create a bespoke portfolio, you’ll love RedSwan. Perhaps the best thing here is the volume of offerings available with buy-ins of only $1,000. Almost all of them are Class A or B residential communities with high upside and IRRs between 14% to 25%.
RedSwan also has two different funds with pre-selected properties for investors who may not be comfortable picking out their own. The RedSwan CRE Value-Add Fund (RSVA) fund has a $1,000 buy-in and features a great mix of the following assets:
This highly diversified fund is targeting an IRR between 14% and18% and a 5.5% annual cash yield. This fund is open for investment until July 15, 2022, so if you want to get on board, do it soon.
RedSwan CRE Core Property Fund (RSCP) is a core fund of diversified CRE that seeks to generate investor returns through rental income. The properties in the RSCP fund were carefully selected for their history of achieving high occupancy and offering solid investor returns. The projected IRR is between 8% to 13% with a targeted 4% annual cash yield. The minimum buy-in for the fund is $1,000; however, the token price is $2 per token, meaning your initial investment will buy 500 shares. The project close date is also July 15, 2022.
In the case of both funds and the individual properties in the RedSwan portfolios, investors have the flexibility of being able to sell or leverage their token after holding it for one year. Considering the quality of these offerings and the enhanced ability to liquidate tokens if necessary, RedSwan really stands tall among its peers in this industry. The only thing keeping this aspect of RedSwan’s CRE investments from being a five-star section is the lack of offerings for non-accredited investors.
Redswan Performance History
Most of RedSwan’s offerings are either still in the period where it is accepting investor contributions or closed too recently to have historical returns. When you take into account the CRE track records of the people who run RedSwan and vet properties for the platform, it’s a good bet that most of these investments will meet or exceed their investment goals.
That is, of course, no guarantee of success, but the other thing to remember is that you really only have to hold on for 12 months. If you decide after a year that you no longer want to be a RedSwan investor, you can sell it in the blockchain without a penalty.
It’s very clear RedSwan’s founders spent a lot of time trying to build a better mousetrap. It Has taken the least popular aspects of investing in real estate (high buy-ins, long hold periods) and replaced them with the best aspects of the blockchain (high investor flexibility and liquidity). It has done that while still managing to deliver a number of high-quality offerings that would strike the fancy of any real estate investor.
If RedSwan’s attempt to link the best parts of CRE investing and the blockchain together succeeds, it could lead to a sea-change in the way we invest in real estate. The use of the blockchain also means that theoretically, RedSwan can open up international real estate investment markets to Americans in the same way that it opens American real estate investments to investors all over the world.
Overall RedSwan is a great platform with a highly innovative business model and a top notch team at the helm. The idea of buying equity in Class A and B real estate then being able to liquidate or leverage it in the blockchain is enticing.
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